As small business health insurance costs continue to rise, employers are looking for ways to offer health benefits at a lower price. One of these strategies is defined contribution healthcare. One of the early-adopters of the defined contribution health model has been small medical offices -- small family practices, dental, naturopathic, and chiropractic offices. These small medical offices greatly value offering employee health benefits, but like most small businesses, struggle to afford it. This article reviews why small medical offices are quickly adopting defined contribution as a health insurance solution.
Overview of Small Business Health Insurance
Small business health insurance plans are a form of employer-sponsored health coverage. Costs are typically shared between the employer and the employee, and coverage may also be extended to dependents. In certain states, self-employed persons without other employees may qualify for group health insurance plans. There are several different types of small business health insurance plans available.
However, many small businesses can’t offer small business health insurance coverage due to rising costs and restrictive minimum contribution and participation requirements. Which is why many small businesses are transitioning (or starting offer health benefits for the first time) with a defined contribution strategy.
Overview of Defined Contribution
A defined contribution health plan allows any employer to name its price for health benefits. Rather than paying the costs to provide a specific small business health plan (a "defined benefit"), employers instead fix their costs by establishing a monthly dollar amount (a “defined contribution”) that employees may spend on qualified health insurance.
With the purest form of defined contribution, employers offer employees a health insurance allowance as the benefits package. Employees purchase an individual policy of their choice, often with the help of a health insurance broker, and are reimbursed as the plan allows.
Why Defined Contribution is Popular with Small Medical Offices
The most common feature discussed with defined contribution is the cost savings and fiscal control. Defined contribution allows the business to set and control all health benefits costs. This feature alone allows many businesses to offer formal health benefits for the first time.
Additionally, there are other benefits of defined contribution that fit well with medical offices, such as healthcare consumerism and employee choice, that make it a popular approach for small medical offices. Here's a look at those benefits and why they fit well with small medical offices.
Controllable Costs – The medical office fixes their costs because they decide how much to contribute. There are no minimum contribution requirements, and employers can vary employee contributions based on job criteria. For small medical offices, and any small business, having predictable and controllable costs year to year adds much needed stability to the budget.
More Time for Serving Patients – A defined contribution health model allows an employer to provide a quality health benefits program in less than 5 minute per month. Administering the health benefits program becomes a payroll function and requires minimal involvement from the employer. There are no annual renewals, and employees maintain the direct relationship with the insurance company. Many medical offices are adopting lean operational philosophies and defined contribution aligns with lean goals. The clinical and administrative staff are often already comfortable working directly with insurance companies and more familiar with health insurance terms than in other non-medical industries.
For employees, the key features of defined contribution are:
Lower Costs – In today's workforce it's not just the employer who pays part of the premium cost -- it's employees too (especially for family coverage). Individual health plans costs 20-30% less than traditional group plans and new tax credits are available to qualifying employees to lower their out-of-pocket costs even more.
Choice of Plan – With their healthcare allowance, each employee may choose the health plan that best fits their personal needs. This can be a plan from any insurance carrier and any type of plan coverage (deductibles, network, etc.). Employees can keep their doctor and preferred medical centers. The plan is portable and theirs to keep if they leave the company.
4 Simple Steps To Start Offering Defined Contribution Health Benefits
Step 1 - Set a date to terminate your group health plan (if you have one)
Step 2 - Define any amount the office can afford
Step 3 - Select an Insurance Professional of your choice to help each employee find the right individual policy
Step 4 - Utilize online administration software to reimburse employees